The following is the summary of the significant geopolitical events that happened in 2017 and which will continue to shape the European energy sector in 2018 and beyond.
European Energy Infrastructure
A new LNG terminal will be operational in 2018. A consortium formed of Greek, American and Bulgarian companies are working to create in Alexandroupolis a floating storage and regasification unit that would serve as a new entry point for LNG into Greece and the Balkans. . The Serbian energy minister Aleksandar Antic said in October that the Greek gas group DEPA has invited Serbian gas monopoly Srbijagas to join the project, adding that the government would analyze the matter. The project would connect with the Greek section of the Trans Adriatic Pipeline (TAP), when built. Another key link that the LNG terminal would connect to is the Greece-Bulgaria Interconnector (IGB), which both Brussels and Washington support, considering that it would allow new gas to enter the European market. The expansion of the existing Greek Revithoussa LNG terminal around Attica is also considered, adding to the current options of bringing new gas to the Balkans and Europe.
The BalticConnector, a EU-backed gas transmission project that links Estonia and Finland, is said to become operational from the beginning of 2020. The funding (187.5 million euros of the total of 250 million euros) for the project was approved by the EU Commission in 2016, but the formalization and confirmation of the project was made in 2017. Currently Russia has a monopoly over the Finish gas imports. The new gas pipeline will be connected to the gas transmission systems between Poland and the Baltic States, which will ultimately enable the integration of the Finnish and Baltic systems with the EU’s common gas market. Both LNG from Lithuanian port of Klaipėda could be fed into the Baltic Connector as well as gas from Central Europe, which would be pumped up through the pipeline system. The project increases the energy security of both Finland and the Baltic states.
The Viking Link Cable linking Denmark to UK was approved by the Danish government in November 2017. Construction will start in 2019 and it will be completed by 2022. Its capacity will be 1400 MW and it will link Denmark (from near Vejen) to the UK (near the town of Boston in Lincolnshire). In connection with the Viking Link, Denmark will also invest in expanding the high voltage grid between Holstebro and the German border, via two other projects. This will increase Denmark’s supply security and improve the country’s ability of trading its surplus of green energy, as a larger market will be available considering the new infrastructure.
The Albanian and Kosovar governments have signed an agreement to establish the Albanian Energy Exchange, which aims to facilitate sales and purchases of energy at prices that reflect the real market value and eliminate the need of public tenders. Ultimately, the two governments’ goal is to establish a common energy market. But for it to function in an efficient manner, the interconnection line between Kosovo and Albania needs to become operational, which would involve cooperation from Serbia.
Updates on Nord Stream 2
There has been no progress on the implementation of the Nord Stream 2 project. The EU Commission, as well as some EU member states have remained outspoken against it during 2017. The Commission sees the project’s strategic dimension and rejects it considering the EU’s goal for decreasing EU’s dependency on both Russian energy imports and fossil fuels. Its implementation would make it possible for Russia to avoid the current route through Ukraine – creating the potential for further problems in the region, considering the economic dimension of Russia cutting off energy exports through and, potentially, to Ukraine.
In Germany, however, the project is regarded more as a business and less as a strategic project. Through Nord Stream 2, Germany would get Russian energy on a shorter route and therefore, increase efficiency of the current supply chain. But, considering EU regulations – in particular the 3rd energy package, makes it hard for the project to be implemented. For more than one year, the project consortium of companies is also searching for ways to finance it, considering that it is no longer eligible for EU funding.
Considering Nord Stream 2 has both economic and political implications for Germany and the EU, the project has been debated during the electoral campaign for parliamentary elections. As the conservative party CDU is negotiating a new coalition government with the socialist SPD, Nord Stream remains one of the subjects that the media has picked on during the last two months. While the CDU is relatively silent on the matter, often pointing to the strategic dimension of the project, the SPD calls for more determination on behalf of Germany for the implementation of the Nord Stream 2. The serving German foreign minister Sigmar Gabriel, an SPD member, has often criticized in 2017 the EU Commission stance on the matter, while supporting the completion of the project.
A new legal framework for the EU energy market
Taking into account the European Union commitment to the Paris Agreement, Europe has engaged itself in leading the global shit to a modern clean energy world. That equals that the energy sector has to undergo rapid changes that would lead to the decarbonization of the European economy. Even taking into account the differences between the European countries, to reach such goal, the energy sector is undergoing a process of decentralization and one of digitalization, both meant to increase efficiency.
During 2017, the EU Commission pushed through the Clean Energy for All Europeans Package, which is under negotiation by the European Parliament and the Council of the EU. The package aims at supporting innovation while also establishing a stable and performing regulatory framework to support the system’s transition to an energy sector where consumers are at the center, benefiting in an efficient way from innovative technologies.
The key issues to be settled through the negotiation on the new Commission’s initiative relates to:
- linking up national and regional initiatives and boosting investment through strategic partnerships and networks
- exploiting synergies between the energy and ICT sectors in order to help overcome barriers in the take-up of smart energy solutions
- in the context of greater digitalisation of the energy sector and the increasing use of data, the need for a strong cyber-security is even more acute
Significant events in the EU neighborhood
Turkey – a work in progress
Turkey has the geographical conditions to become an energy hub. The government, as it increases political control within the country, is working towards that goal. During 2017, Turkey has continued working with Russia on implementing the Turkish Stream. Ankara and Moscow have also restarted discussions on Akkuyu nuclear power plant.
Regionally, Turkey, Iran and Azerbaijan have established a trilateral format for discussing on regional matters. The three countries’ leadership representatives have also announced that the private sector will be involved in the talks starting 2018. The energy and transit sectors were mentioned as priority for businesses to address, considering the three countries’ economic interests. However, while the Turkish economy has been slowly recovering, Iran and Azerbaijan are struggling with socio-economic problems, which could, in theory, pose a destabilization threat to the two states and the region.
Ukraine – the latest developments
In November 2017, major Ukrainian energy companies signed a memorandum on joint work towards the integration of Ukraine’s power system into the European Network of Transmission System Operators for Electricity (ENTSO-E), which is expected to be finalized by July 2022. Ukrenerho, the national energy company will oversee the work of a joint coordinating council which should develop a plan on how to establish the formal framework for interconnecting the power system of Ukraine and Moldova with the power system of Continental Europe.
Ukraine’s government announced it plans to increase the share of nuclear fuel it purchases for its nuclear power stations from Westinghouse from 40 per cent to 65 per cent in 2018. This would cut into the 60% share that Russia supplies the Ukrainian plants. It was also announced that Central Spent Fuel Storage Facility will be build.
Belarus – a (new) problem to Russia?
It is certainly not news that Belarus is negotiating with Russia its energy supplies contracts. The Belarusian Energy Minister Uladzimir Patupchyk said in an interview broadcast on the Belarus 1 television channel on Dec. 24, 2017 that Belarus will stop importing electricity from Russia. This comes after in April 2017, Russia agreed to supply 24 million tons of oil per year to Belarus and Minsk accepted to pay $130 per 1000 cubic meters of gas, ending a two-year row between the two countries. At first read, the announcement about the suspension of electricity import from Russia seemed to be an indication of a new energy row growing between the countries.
But Belarus relies on Russian gas imports to generate 95 percent of its electricity. To decrease its dependency on gas imports, it builds a the Astravets 2,400-megawatt nuclear power plant which is to become operational in 2019. But that doesn’t cut into Russian influence, even if its operability will likely mean a decrease in the country’s gas imports. Russian state-owned Rosatom Corp. is building the plant and Russia is financing the lion’s share of the $11 billion cost.
Belarus is tied to Russia due to its dependency on Russian energy supplies. Russia is also the main market for Belarusian exports and the main provider for Minsk. With the Russian economic problems during the last 2 years, Belarus, too saw its share of socio-economic distress. As a result, Lukashenko looked to establish good relations with the EU. His attempts, while largely symbolic, have worried Moscow, especially since Lukashenko proved, during the last year, that he holds control of the country.